Short-seller Viceroy has in recent months kept Capitec Bank’s share price under pressure through several reports claiming the banking group is a loan shark, and effectively lying about some of its loan products.
When Viceroy first targeted Capitec in January, the market reacted harshly, sending the bank’s share price crashing by as much as 25%. The reason so many investors were keen to heed Viceroy’s warnings were ostensibly because of the short-seller’s reputation for being the one who ‘called it’ in the Steinhoff saga just a few months before.
However, a new research report published by Intellidex is calling into question Viceroy’s legitimacy as a market analyser, saying that the group may have plagiarised the work that legitimised it and gave it relevance in South Africa.
Intellidex was commissioned by Business Leadership South Africa (BLSA) to produce a report on short selling activities, in particular those of Viceroy Research.
“Prior to Viceroy’s research report on Steinhoff, its research received little media attention internationally,” Intellidex said.
“The Steinhoff report, however, received significant coverage and thereafter there was extensive mention of Viceroy in the media. In the aftermath of shock revelations of accounting irregularities at Steinhoff, there was a desperate need for information which Viceroy was able to fulfil.”
After the Steinhoff report, rumours of Viceroy research targets alone would move share prices, Intellidex said, while actual releases had a dramatic impact on share prices, with Capitec being the clearest example.
However, based on its analysis, Intellidex found that Viceroy’s Steinhoff report “was substantially plagiarised from a report produced by hedge fund Portsea Asset Management six months earlier”.
“Viceroy’s contribution of original content to the report appears to be negligible. While the Steinhoff report and related media coverage gave Viceroy considerable influence, in our view this was misplaced given that, according to our research, the Steinhoff report was substantially not its own work,” it said.
On the contrary, Viceroy’s influence benefited from little more than timing, with its report published just two days after the Steinhoff saga hit the news, when the market was extremely eager for any insight on what had gone wrong at Steinhoff, the group said.
Intellidex’s findings also questioned the contrasting levels of quality in Viceroy’s research papers, which had wild swings from in-depth and coherent analysis, to little more than anecdotes and ad hominem attacks on companies and their executives.
There was a notable decline in quality after the Steinhoff report, it said.
“We believe that a significant proportion of the content of Viceroy’s reports is drawn from other sources, particularly funds and short sellers, which are not disclosed in its reports,” Intellidex said.
Other findings by Intellidex which question Viceroy’s operations include:
- Viceroy has no formal registration with any regulator that could be determined – as it is unregulated, there’s no way to determine how Viceroy monetises its work. as Viceroy is a relative newcomer to short-selling – it appears to mainly generate publicity on companies targeted by other short-sellers, which Intellidex speculates may pay the firm semi-formal gratuities.
- Viceroy’s founder, Fraser Perring, has a history of dishonesty, having been disbarred as a social worker in the UK. The other two members of Viceroy are 24 year old Australians – one of whom has a background in corporate restructuring, and the other has no traceable professional background.
- Intellidex regards Viceroy’s reports as declining in quality, which could indicate that the views in the reports are not firmly-held beliefs by the writers, but rather presented purely to manipulate markets.
Given all the above, Intellidex concluded that Viceroy’s influence is misplaced, based on plagiarised work, and it anticipates that this influence will decline over time.
“While we have argued that Viceroy has an unearned influence which it has used to affect prices beyond that justified by its research, it has played a positive role in giving South Africans an opportunity to assess and understand the actions and motives of short sellers. In that respect, Viceroy has done a public service,” Intellidex said.
As part of its research, Intellidex sent questions to Viceroy, to which it got a response.
“Viceroy is governed by the same laws as any other fund operating in our jurisdiction. The South African Standing Committee of Finance has recently expressed a view in a media statement that suggests we are free-willed buccaneers who can do as we please. This is not the case. We are beholden to regulators.
We are huge advocates of free speech and whistleblower programs, as we believe they keep companies honest. Viceroy’s lawyers have advised we are not required to register for free speech.”
On its reports:
“We believe the content of our reports is the catalyst that drives share prices downwards. On many occasions there have been flat or positive price movements on our reports. We have always been proponents of due diligence, and believe our work should be scrutinised to the same extend as ‘buy’ reports.”
On its research:
“Viceroy has a large network of specialist contractors which we engage on a case-by-case basis to assist with industry specific analysis. This is commonplace in the industry. Viceroy is sent significant amounts of data anonymously, which of course may come from funds.”